Treasury Secretary Jack Lew at annual economic talks in Beijing on Monday. (Wu Hong/EPA)

Treasury Secretary Jack Lew chided China on Monday for allowing a glut of steel and aluminum to flood global markets, and urged Beijing to treat foreign companies with the same openness that Chinese firms often receive across the world.

The annual U.S.-China Strategic and Economic Dialogue is usually an occasion when the two sides try to highlight areas of cooperation and progress. But this year’s event in Beijing is overshadowed by growing trade and commercial friction, as well as continued sparring over China’s efforts to exert greater control over the South China Sea.

Massive investment in heavy industry in China’s boom years has led to an overhang of production capacity. With economic growth slowing, the government has been left propping up industries such as steel, aluminum, shipbuilding and coal mining.

Now, the issue has become a global one.

China is accused of dumping much of the excess production in Western markets, causing job losses and protests. The U.S. Commerce Department responded last month by imposing anti-dumping and anti-subsidy duties on many Chinese steel products.

“Excess capacity has a distorting effect and damaging effect on global markets,” Lew said at the start of two days of high-level talks. “Implementing policies to substantially reduce production in a range of sectors suffering from overcapacity, including steel and aluminum, is critical to the function and stability of global markets.”

On Sunday, during a talk at Beijing’s Tsinghua University, Lew said excess steel capacity also would have a “corrosive” effect on China’s economic efficiency.

China produces more than half of the world’s steel, but argues that excess capacity in the industry is a global issue. It also accuses the United States of protecting and subsidizing its domestic iron and steel industry for more than three decades, allowing it to become uncompetitive globally.

Lou Jiwei, Lew’s Chinese counterpart, responded by arguing that China already had cut 100 million tons of iron and steel production last year, and by pledging to do more. He said China’s infrastructure investment boom in the wake of the 2008 financial crisis had played a huge rule in supporting the global economy.

“At that time, the whole world applauded China and thanked China. Even Time magazine once featured two Chinese migrant workers on its cover,” he argued. “It said, the world should be thankful for Chinese migrant workers for helping the world get out of the crisis. Now you are pointing fingers at China’s overcapacity issue. What were you saying back then?”

Chinese President Xi Jinping opened Monday’s talks pledging to continue to reform China’s economy and open it to the outside world. “We have full confidence that China can achieve its goals of economic and social development,” he said.

But many diplomats and analysts are skeptical, arguing that economic reforms have slowed, and that protectionism is rising.

“Not much is happening on the ground, and it’s not going to happen soon,” one European diplomat said about cutting overcapacity, speaking on condition of anonymity when discussing a sensitive subject. “There is a limit to what you can do without jeopardizing political and social stability.”

The talks also come at a time of growing concern about China’s treatment of foreign companies.

Ahead of the talks, American Chamber of Commerce complained of “delays and hiccups” in reforms, and noted that 77 percent of its members now feel less welcome in China than before, citing in particular “unclear laws and inconsistent interpretation.”

Lew said concerns about the business climate in China had risen.

“Candidly, foreign businesses wonder if they are welcome, and find China’s regulatory environment harder and harder to navigate,” he said.

Many European nations share those concerns, arguing that their markets are far more open to Chinese investment than China is for their companies, in anything from banking to automobile manufacture.

“In some fields, there is no progress, and in others the situation is deteriorating,” the European ambassador said, citing “protectionism” in several sectors of the economy, including new rules to impose licensing requirements on imports of pharmaceuticals and foodstuffs.

Lew also recalled a steep fall in China’s stock market in August that triggered declines across the United States and Europe, and called for greater transparency in China’s regulatory environment and in its economic data, as well as better communication of its economic policies.

The Treasury secretary said the U.S. government was also “very concerned” about a new law regulating the activities of foreign non-governmental organizations in China. He said the work of such groups had helped China open to the outside world, helped it address critical human needs and allowed for its larger economic success.

China, though, fears that some NGOs, supported and encouraged by Western governments, have a very different agenda: to subvert one-party rule in China and encourage a transition to democracy, and it is determined to weed them out.

Gu Jinglu contributed to this report.